ESG controversies, intellectual capital and firm financial performance: evidence from Chinese manufacturing sector

Purpose This study aims to examine the influence of environmental, social and governance (ESG) controversies on firm financial performance in the Chinese manufacturing sector based on stakeholder theory and resource-based theory. In addition, this study explores the mediating role of intellectual capital (IC) components between them. Design/methodology/approach This study collects data from 3,102 manufacturing companies listed on the Shanghai, Shenzhen and Beijing stock exchanges from 2018 to 2023. ESG controversies are measured by the Wind controversies scores, and IC is divided into human capital, structural capital (SC) and relational capital (RC). In addition, we use the two-way fixed effects models to test the hypotheses. Findings The results show that more and more manufacturing companies are engaged in ESG controversies. ESG-related controversies have a negative impact on manufacturing firms’ financial performance. In addition, SC and RC play a mediating role in the relationship between ESG controversies and firm financial performance. The study also shows that the negative impact of ESG controversies and the mediating effect of SC and RC are more prominent in privately owned enterprises. Originality/value This is the first study to explore the direct impact of ESG controversies on the financial performance of Chinese manufacturing companies. Additionally, by unveiling the mediating role of IC, this study can help manufacturing managers to improve firm performance through managing IC resources and taking their social responsibility.